BusinessWire

Startek Reports Second Quarter 2020 Financial Results

Company Drives Consistent Month-over-Month Improvements During the Quarter

Remains Comfortable with Liquidity Position; Active Workforce Back to 80% of Pre-COVID Levels

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--Startek, Inc. (NYSE:SRT), a global provider of customer experience management solutions, is reporting financial results for the second quarter ended June 30, 2020.


Management Commentary

“As we navigated COVID-19 related headwinds across our geographies, we emerged from the second quarter as a stronger, more efficient organization,” said Aparup Sengupta, Executive Chairman and Global CEO of Startek. “Our global command center has enabled us to maintain the quality and continuity of our operations around the world, and across our business, we have driven consistent month-over-month improvements on both the top and bottom-line since the lows of the pandemic in April.

“We have been closely monitoring the fluctuating status of lockdowns and reopenings across our operating regions. With the priority of keeping our entire global team safe and healthy, we moved swiftly to get 40,000+ team members to either work from home—through our new ‘StarCloud’ remote work capabilities—or in one of our delivery campuses, which adhere to strict social distancing and recommended health guidelines. Approximately 80% of our workforce is active today compared to just 60% in mid-April, and I am incredibly proud of our team’s flexibility and effectiveness in completing this pivot.

“An emerging trend from clients and prospects in response to the pandemic has been the adoption of digital services, particularly across high-growth verticals that are experiencing tailwinds from the COVID-19 environment. We are seeing positive momentum with clients in industries such as healthcare, e-commerce, and even cable/media in the wake of elevated consumer demand. Targeting these verticals has been a consistent part of our strategy, even predating the pandemic, so we have been well-equipped for this opportunity. As our clients’ businesses evolve, we are committed to helping their digital capabilities evolve with them.

“Although we have limited visibility on the effects of the pandemic going forward, we are well-positioned to continue our recovery and maintain a high level of active workforce. If some of our geographies go back into lockdown, we are now much better equipped for remote work through our StarCloud technology. We plan to maintain prudent cost controls, as reflected by our fourth consecutive quarter of SG&A reductions, and we remain comfortable with our liquidity position as we navigate through this dynamic environment.”

Second Quarter 2020 Financial Results

Net revenue for the quarter was $142.2 million compared to $160.6 million in the second quarter of 2019. Net revenue in the second quarter was impacted by the COVID-19 lockdowns and lower active workforce in most geographies.

Gross profit in the second quarter was $15.8 million compared to $27.6 million in the year ago quarter. Gross margin was 11.1% compared to 17.2% in the year ago quarter. The lower gross margin was primarily driven by higher costs relative to revenues as a result of the COVID-19 lockdowns in geographies such as India, Philippines and Honduras.

Selling, general and administrative (SG&A) expenses decreased to $14.6 million compared to $24.9 million in the year-ago quarter. As a percentage of revenue, SG&A improved 520 basis points to 10.3% compared to 15.5% in the year-ago quarter as the company has implemented a series of cost reductions over the last 12 months and in response to COVID-19. This marks the 4th consecutive quarter of SG&A reductions.

Net loss attributable to Startek shareholders for the quarter was $5.2 million or $(0.14) per share, compared to a net loss of $3.6 million or $(0.10) per share in the year-ago quarter. The decline was driven by the aforementioned impacts from COVID-19 lockdowns.

Adjusted net loss* in the second quarter of 2020 was $2.6 million, or $(0.07) per share, compared to an adjusted net loss* of $0.1 million or $(0.00) per share in the second quarter of 2019.

Adjusted EBITDA* for the quarter was $8.8 million compared to $11.0 million in the year-ago quarter.

On June 30, 2020, cash and restricted cash increased to $56.4 million compared to $39.7 million at March 31, 2020. The increase is primarily the result of tight control over costs and accounts payable that resulted in working capital improvements, deferred principal debt payments and a $7.5 million equity raise completed in June 2020. Total debt at the end of the quarter reduced to $149.9 million compared to $175.2 million at March 31, 2020, primarily due to the closure of its ABL facility and repayment of loans from the proceeds of non-recourse factoring. As a result, net debt at June 30, 2020 reduced to $93.5 million compared to $135.5 million at March 31, 2020.

Senior Term Loan and Revolving Credit Facility Amendment

Subsequent to the quarter, Startek entered into an amendment agreement for its senior term loan and revolving credit facility. The agreement continues to provide for a $140 million term loan facility along with a $20 million revolving credit facility. However, the amendments now provide Startek with a deferment of principal payments until February 2021, and the revolving credit facility has been increased from $20 million to $27.5 million. The majority of financial covenants have also been waived for the remainder of the year.

*A non-GAAP measure defined below.

Conference Call and Webcast Details

Startek management will hold a conference call today at 5:00 p.m. Eastern time to discuss its financial results. The conference call will be followed by a question and answer period.

Date: Monday, August 10, 2020
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: 1-800-954-1052
International dial-in number: 1-212-231-2925
Conference ID: 21967515

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

The conference call will be broadcast live and available for replay here, as well as in the investor relations section of the company’s website at www.startek.com.

A telephonic replay of the conference call will also be available after 8:00 p.m. Eastern time on the same day through August 17, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 21967515

About Startek

Startek is a leading global provider of technology-enabled business process outsourcing solutions. The company provides omni-channel customer experience management, back office and technology services to corporations around the world across a range of industries. The company has more than 40,000 outsourcing experts across 49 delivery campuses worldwide that are committed to delivering transformative customer experience for clients. Services include omni-channel customer care, customer acquisition, order processing, technical support, receivables management and analytics through automation, voice, chat, email, social media and IVR, resulting in superior business results for its clients. To learn more about Startek’s global solutions, please visit www.startek.com.

Forward-Looking Statements

The matters regarding the future discussed in this news release include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are intended to be identified in this document by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should” and similar expressions. As described below, such statements are subject to a number of risks and uncertainties that could cause Startek's actual results to differ materially from those expressed or implied by any such forward-looking statements. Readers are encouraged to review risk factors and all other disclosures appearing in the Company's Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on March 12, 2020, as well as other filings with the SEC, for further information on risks and uncertainties that could affect Startek's business, financial condition and results of operation. Copies of these filings are available from the Securities and Exchange Commission, the Company’s website or the Company’s investor relations department. Startek assumes no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date herein.

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

142,652

 

 

 

161,283

 

 

 

303,829

 

 

 

322,425

 

Warrant contra revenue

 

 

(485

)

 

 

(730

)

 

 

(763

)

 

 

(730

)

Net Revenue

 

 

142,167

 

 

 

160,553

 

 

 

303,066

 

 

 

321,695

 

Cost of services

 

 

(126,354

)

 

 

(132,993

)

 

 

(267,195

)

 

 

(266,921

)

Gross profit

 

 

15,813

 

 

 

27,560

 

 

 

35,871

 

 

 

54,774

 

Selling, general and administrative expenses

 

 

(14,644

)

 

 

(24,936

)

 

 

(31,899

)

 

 

(49,015

)

Impairment losses and restructuring/exit cost

 

 

(235

)

 

 

(721

)

 

 

(24,557

)

 

 

(1,850

)

Acquisition related cost

 

 

-

 

 

 

(25

)

 

 

-

 

 

 

11

 

Operating (Loss) / Income

 

 

934

 

 

 

1,878

 

 

 

(20,585

)

 

 

3,920

 

Share of (loss) / profit of equity accounted investees

 

 

(12

)

 

 

662

 

 

 

(20

)

 

 

1,003

 

Interest expense, net

 

 

(3,190

)

 

 

(4,026

)

 

 

(6,696

)

 

 

(8,492

)

Exchange gain / (loss), net

 

 

(1,637

)

 

 

14

 

 

 

291

 

 

 

(677

)

Loss before income taxes

 

 

(3,905

)

 

 

(1,472

)

 

 

(27,010

)

 

 

(4,246

)

Income tax expense

 

 

1,283

 

 

 

730

 

 

 

4,159

 

 

 

1,113

 

Net loss

 

 

(5,188

)

 

 

(2,202

)

 

 

(31,169

)

 

 

(5,359

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

 

29

 

 

 

1,392

 

 

 

605

 

 

 

1,581

 

Net loss attributable to Startek shareholders

 

 

(5,217

)

 

 

(3,594

)

 

 

(31,774

)

 

 

(6,940

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

 

(0.14

)

 

 

(0.10

)

 

 

(0.82

)

 

 

(0.18

)

Weighted average common shares outstanding - basic and diluted

 

 

38,614

 

 

 

37,779

 

 

 

38,571

 

 

 

37,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net Loss

 

 

(5,188

)

 

 

(2,202

)

 

 

(31,169

)

 

 

(5,359

)

Net income attributable to noncontrolling interests

 

 

29

 

 

 

1,392

 

 

 

605

 

 

 

1,581

 

Net loss attributable to Startek shareholders

 

 

(5,217

)

 

 

(3,594

)

 

 

(31,774

)

 

 

(6,940

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

727

 

 

 

32

 

 

 

(3,665

)

 

 

599

 

Change in fair value of derivative instruments

 

 

(8

)

 

 

413

 

 

 

(680

)

 

 

348

 

Pension amortization

 

 

(3,026

)

 

 

(236

)

 

 

(2,630

)

 

 

(60

)

Comprehensive (loss) / income

 

 

(2,307

)

 

 

209

 

 

 

(6,975

)

 

 

887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) / income attributable to noncontrolling interest

 

 

(1,787

)

 

 

(111

)

 

 

(1,624

)

 

 

(25

)

Other comprehensive (loss) / income attributable to Startek shareholders

 

 

(520

)

 

 

320

 

 

 

(5,351

)

 

 

912

 

 

 

 

(2,307

)

 

 

209

 

 

 

(6,975

)

 

 

887

 

Comprehensive (loss) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

 

(1,758

)

 

 

1,281

 

 

 

(1,019

)

 

 

1,556

 

Comprehensive loss attributable to Startek shareholders

 

 

(5,737

)

 

 

(3,274

)

 

 

(37,125

)

 

 

(6,028

)

 

 

 

(7,495

)

 

 

(1,993

)

 

 

(38,144

)

 

 

(4,472

)

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

47,451

 

 

 

20,464

 

Restricted cash

 

 

8,966

 

 

 

12,162

 

Trade accounts receivable, net

 

 

70,194

 

 

 

108,479

 

Unbilled revenue

 

 

40,181

 

 

 

41,449

 

Prepaid and other current assets

 

 

14,308

 

 

 

12,008

 

Total current assets

 

 

181,100

 

 

 

194,562

 

Property, plant and equipment, net

 

 

37,644

 

 

 

37,507

 

Operating lease right-of-use assets

 

 

77,437

 

 

 

73,692

 

Intangible assets, net

 

 

105,644

 

 

 

110,807

 

Goodwill

 

 

196,633

 

 

 

219,341

 

Investment in associates

 

 

109

 

 

 

553

 

Deferred tax assets, net

 

 

2,980

 

 

 

5,251

 

Prepaid expenses and other non-current assets

 

 

17,113

 

 

 

16,370

 

Total assets

 

 

618,660

 

 

 

658,083

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payables

 

 

18,669

 

 

 

25,449

 

Accrued expenses

 

 

54,857

 

 

 

45,439

 

Short term debt

 

 

29,134

 

 

 

26,491

 

Current maturity of long term debt

 

 

9,863

 

 

 

18,233

 

Current maturity of operating lease obligation

 

 

20,223

 

 

 

19,677

 

Other current liabilities

 

 

39,089

 

 

 

37,159

 

Total current liabilities

 

 

171,835

 

 

 

172,448

 

Long term debt

 

 

110,923

 

 

 

130,144

 

Operating lease liabilities

 

 

58,251

 

 

 

54,341

 

Other non-current liabilities

 

 

17,935

 

 

 

11,140

 

Deferred tax liabilities, net

 

 

17,095

 

 

 

18,226

 

Total liabilities

 

 

376,039

 

 

 

386,299

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 40,210,299 and 38,525,636 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

401

 

 

 

385

 

Additional paid-in capital

 

 

286,205

 

 

 

276,827

 

Accumulated deficit

 

 

(78,332

)

 

 

(46,145

)

Accumulated other comprehensive loss

 

 

(11,373

)

 

 

(6,022

)

Equity attributable to Startek shareholders

 

 

196,901

 

 

 

225,045

 

Non-controlling interest

 

 

45,720

 

 

 

46,739

 

Total stockholders’ equity

 

 

242,621

 

 

 

271,784

 

Total liabilities and stockholders’ equity

 

 

618,660

 

 

 

658,083

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(31,169

)

 

$

(5,359

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,328

 

 

 

14,631

 

Impairment of goodwill

 

 

22,708

 

 

 

-

 

Profit on sale of property, plant and equipment

 

 

-

 

 

 

(223

)

Provision for doubtful accounts

 

 

889

 

 

 

1,169

 

Warrant contra revenue

 

 

763

 

 

 

730

 

Share-based compensation expense

 

 

209

 

 

 

781

 

Deferred income taxes

 

 

1,604

 

 

 

(1,224

)

Share of profit of associates

 

 

20

 

 

 

(1,003

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

34,022

 

 

 

(1,218

)

Prepaid expenses and other assets

 

 

(2,301

)

 

 

(7,677

)

Trade accounts payable

 

 

(5,920

)

 

 

(2,091

)

Income taxes, net

 

 

(2,314

)

 

 

(2,663

)

Accrued expenses and other current liabilities

 

 

15,558

 

 

 

(1,280

)

Net cash (used in) / generated from operating activities

 

$

48,397

 

 

$

(5,427

)

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(7,864

)

 

 

(7,302

)

Proceeds from equity-accounted investees

 

 

395

 

 

 

1,329

 

Net cash used in generated investing activities

 

$

(7,469

)

 

$

(5,973

)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock

 

 

8,009

 

 

 

6,466

 

Payments on long term debt

 

 

(4,200

)

 

 

(4,200

)

Proceeds from (payments on) other debt, net

 

 

(20,449

)

 

 

10,513

 

Net cash (used in) / generated from financing activities

 

$

(16,640

)

 

$

12,779

 

Net increase in cash and cash equivalents

 

 

24,288

 

 

 

1,379

 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

(497

)

 

 

(40

)

Cash and cash equivalents and restricted cash at beginning of period

 

 

32,626

 

 

 

24,569

 

Cash and cash equivalents and restricted cash at end of period

 

$

56,417

 

 

$

25,908

 

 

 

 

 

 

 

 

 

 

Components of cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Balances with banks

 

 

47,451

 

 

 

15,452

 

Restricted cash

 

 

8,966

 

 

 

10,456

 

Total cash and cash equivalents and restricted cash

 

 

56,417

 

 

$

25,908

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for Interest and other finance cost

 

 

6,440

 

 

 

8,200

 

Cash paid for income taxes

 

 

4,017

 

 

 

4,920

 

Non cash warrant contra revenue

 

 

763

 

 

 

730

 

Non cash share-based compensation expenses

 

 

209

 

 

 

781

 

STARTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURE
(In thousands)
(Unaudited)

This press release contains references to the non-GAAP financial measure of Adjusted EBITDA. Reconciliation of this non-GAAP measure to its comparable GAAP measure is included below. This non-GAAP information should not be construed as an alternative to the reported results determined in accordance with GAAP. It is provided solely to assist in an investor’s understanding of these items on the comparability of the Company’s operations.

Adjusted EBITDA:

The Company defines non-GAAP Adjusted EBITDA as Net loss plus Income tax expense, Interest and other expense, net, Depreciation and amortization expense, Restructuring and other acquisition related cost, Share-based compensation expense and Warrant contra revenue (if applicable). Management uses Adjusted EBITDA as a performance measure to analyze the performance of our business. Management believes that excluding these non-cash and other non-recurring items permits a more meaningful comparison and understanding of our strength and performance of our ongoing operations for our investors and analysts.

Adjusted EPS:

Adjusted EPS is a non-GAAP financial measure presenting the earnings generated by our ongoing operations that we believe is useful to investors in making meaningful comparisons to other companies, although our measure of Adjusted EPS may not be directly comparable to similar measures used by other companies, and period-over-period comparisons. Adjusted EPS is defined as our diluted earnings per common share attributable to StarTek shareholders adjusted to exclude the effects of the amortization of acquisition-related intangible assets, investments that investors may want to evaluate separately (such as based on fair value) and the impact of certain events, gains, losses or other charges that affect period-over-period comparisons. Acquisition-related intangible assets are recognized as a result of the application of Accounting Standards Codification Topic (“ASC”) 805, Business Combinations (such as customer relationships and Brand), and their amortization is significantly affected by the size and timing of our acquisitions.

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June

 

 

Six Months Ended June

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net Loss

 

 

(5,188

)

 

 

(2,202

)

 

 

(31,169

)

 

 

(5,359

)

Income tax expense

 

 

1,283

 

 

 

730

 

 

 

4,159

 

 

 

1,113

 

Interest and other expense, net

 

 

3,202

 

 

 

3,364

 

 

 

6,716

 

 

 

7,489

 

Exchange gain/(loss), net

 

 

1,637

 

 

 

(14

)

 

 

(291

)

 

 

677

 

Depreciation and amortization expense

 

 

7,234

 

 

 

7,328

 

 

 

14,328

 

 

 

14,631

 

Impairment losses and restructuring cost

 

 

235

 

 

 

746

 

 

 

24,557

 

 

 

1,839

 

Share-based compensation expense

 

 

(82

)

 

 

356

 

 

 

209

 

 

 

781

 

Warrant contra revenue

 

 

485

 

 

 

730

 

 

 

763

 

 

 

730

 

Adjusted EBITDA

 

 

8,806

 

 

 

11,038

 

 

 

19,272

 

 

 

21,901

 

Adjusted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June

 

 

Six Months Ended June

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Profit attributable to Startek shareholders

 

 

(5,217

)

 

 

(3,594

)

 

 

(31,774

)

 

 

(6,940

)

Add: Share based compensation expense

 

 

(82

)

 

 

356

 

 

 

209

 

 

 

781

 

Add: Amortization of intangible assets

 

 

2,260

 

 

 

2,428

 

 

 

4,522

 

 

 

4,739

 

Add: Warrant contra revenue

 

 

485

 

 

 

730

 

 

 

763

 

 

 

730

 

Add: Goodwill impairment loss

 

 

-

 

 

 

-

 

 

 

22,708

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income / (loss) (non-GAAP)

 

 

(2,554

)

 

 

(80

)

 

 

(3,572

)

 

 

(690

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - Basic & Diluted

 

 

38,614

 

 

 

37,779

 

 

 

38,571

 

 

 

37,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS - Basic & Diluted

 

 

(0.07

)

 

 

(0.00

)

 

 

(0.09

)

 

 

(0.02

)

 


Contacts

Investor Relations
Sean Mansouri, CFA
Gateway Investor Relations
(949) 574-3860
investor@startek.com